The Coase theorem leads to what has become known as "free market environmentalism." The Commons Blog is the place for discussion of free market environmentalism issues. The basic idea is this:
Free market environmentalism (FME) rejects the “market failure” model. ... Resources that are privately owned or managed and, therefore, are in the marketplace are typically well-maintained. Resources that are unowned or politically controlled, and therefore outside the market, are more apt to be inadequately managed.
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For incentives to work, the property right to a resource must be definable, defendable, and divestible. Owners must be free to transfer their property rights to others at will. Even someone indifferent or hostile to environmental protection has an incentive to take environmental concerns into account, because despoiling the resource may reduce its value in the eyes of potential buyers. The role of government is to protect property rights for environmental resources and secure the voluntary agreements property owners contract to carry out. Moreover, FME advocates insist on the application of common law liability rules to environmental harms, such as polluting a neighbor’s property, to protect property rights and to provide additional incentives for good stewardship. To harm someone’s property by polluting it is no more acceptable than vandalizing it.
Here is the full story.
Economists, as a group, prefer market solutions to government solutions. Free market environmental solutions sound wonderful, and I'm tempted to jump in, but I question whether, in practice, a policy of assigning property rights works. It seems that most global (e.g., climate change), national, regional (e.g., acid rain), and even local (e.g., drinking water) environmental problems can not be solved by assigning property rights and allowing private negotiation to work its magic. The biggest problem, it seems, is the enormous costs of getting those who suffer the costs of pollution together for negotiation and creating incentives to avoid free riding.
The prompt for this post is an article in the NY Times Ireland's Garbage Secrets Come Glaringly to Light (another problem is the unscrupulous private negotiator):
The earthen cliffs near this seaside harbor town have been sporting colorful decorations recently: erosion by the gentle waves of the Irish Sea has exposed the scraggly remnants of hundreds of blue, black and yellow trash bags. The shredding plastic flutters in the wind alongside jutting scraps of rusted metal; the twisted wrecks of unidentifiable junked machines already lie on the rocky beach below.
The eroding coast at Bray's municipal dump has revealed blue, black and yellow trash bags, part of the 200,000 tons of debris buried there over the years and now part of Ireland's big waste management problem.
Some 200,000 tons of rubbish was buried over generations at this municipal landfill, half an hour south of Dublin, until it was closed in the early 1980's. Now that the dump is falling into the sea, the mess on the beach has become the symbolic tip of another iceberg: this tiny island nation's historic inability to deal with its garbage.
Bray, some say, is the forefather of a waste-management situation that has spiraled out of control. Ireland's "Celtic Tiger" economy generated a vast increase in garbage over the last decade. This unpleasantly tangible side effect met with Ireland's inadequate capacity, expensive landfill fees and lax oversight to create a roaring black market in garbage collection. Construction companies and even homeowners paid unscrupulous truckers to cart away rubble and trash.
Carting industry executives say as much as one million tons of waste, or 15 percent of the national total, still disappear illegally each year, and the money changing hands over it may reach up to $120 million.
Is a "roaring black market" the same thing as the free market outcome without some sort of government regulation?
Yukky, if so.
Check out The Commons Blog for examples of how common law liability rules and government enforcement of property rights might right these wrongs.
